Securities and Exchange Commission Chairman Gary Gensler said Tuesday that credit and cryptocurrency participation platforms that maintain custody of users’ funds could be included in U.S. securities laws and, consequently, in the supervision of your agency.
After a hearing before the Senate Banking Committee, Gensler told The Block that Congress in its 1933 Securities Act and 1934 Securities Exchange Act “painted with a broad brush on what security is. “.
This question of what is and what is not a security has been a crucial feature of the cryptographic industry and its relationship with the SEC and other regulators for years. In a conversation, Gensler offered a broad view of this dynamic.
“If you offer a loan product, it’s very likely that that loan product is under securities laws,” Gensler said.
A recent SEC spit with Coinbase on your Lend product suggested to many that cryptocurrency lending platforms should register with the SEC sooner rather than later.
Using the argument “not your keys, nor your coins,” Gensler continued to consider betting platforms to tell The Block:
“I would remind your readers that if you invest in a centralized stock market or a centralized lending platform, you are no longer your witness. You have transferred ownership to the platform. All you have is counterparty risk. And this platform could be saying, like many of them, we will give you a return of four percent or seven percent if you play your coins with us or if you actually transfer ownership and we the platform will bet your chips on it. This takes all the indications of what Congress is trying to protect under securities laws. “
During the hearing itself, Gensler found many of the Senate banking committee receptive to his broad view of what qualifies as security and that requires proper registration and regulation.
Senator Elizabeth Warren, on the other hand, shared Gensler’s concerns about exchanges like Coinbase, a political impetus the two have been working on together for months.
“Many have been drawn to drastic jumps in the value of new digital assets,” said Sherrod Brown, chairman of the committee, of last year’s market volatility. “Some professional investors and celebrities make making millions seem easy. But, as we are reminded time and time again, it’s never that easy and all too often someone’s quick profits go to the expense of workers and communities. whole “.
Meanwhile, ranking member Pat Toomey criticized the SEC’s lack of clarity about what is and is not a security, saying:
“I understand that SEC staff will provide private feedback and analysis on whether a cryptocurrency is a security. Why keep this analysis private? Why not publicly announce what features make a cryptocurrency a security or not? Only when it is produces an enforcement action, in some cases years after the product launch? This enforcement regulation is extremely unpleasant and will kill national innovation. “
In his interrogation, Toomey asked for more details about what cryptocurrencies are securities. Gensler responded widely.
Toomey provided stable currencies in particular, to which Gensler replied, “I think they may be securities.”
Toomey, in turn, argued that there was an expectation of profit with the stablecoins, a critical point in the SEC’s determination of whether an investment is an investment contract and therefore a security.
“If he doesn’t meet the Howey test, I don’t feel any security,” Toomey said. “And certainly we shouldn’t take enforcement action against someone without first providing that clarity.”
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